Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly debts.

Understanding the qualifying ratio

Typically, conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (including principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.

Some example data:

With a 28/36 qualifying ratio

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Loan Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.

AmeriBest Mortgage can answer questions about these ratios and many others. Call us: 3217777277.

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